KGI: Ganfeng Lithium Co Ltd (1772 HK) – High oil prices accelerate the end of petroleum vehicle era
alanyeo
BUY Entry – 90 Target – 110 Stop Loss – 81
GANFENG LITHIUM CO., LTD. is a China-based company principally engaged in the research, development, production and sales of deeply processed lithium products. The Company’s main products include lithium compounds, lithium metal and lithium batteries. The Company’s products are mainly used in electrical vehicles, chemicals and pharmaceuticals. The Company distributes its products in the domestic market and to overseas markets.
Lithium carbonate reached another record high. Lithium carbonate prices in China rose to RMB493,500/tonne as of 8th March due to high global demand and tight supplies. Prices have jumped more than 87% YTD. China is expected to double the EV sales in 2022 to more than 5mn units. Meanwhile, battery producers rush to secure long-term supply contracts with lithium mining companies. The recent sanction on Russia pushed oil prices back to more than US$100/bbl. The outlook for oil is still very bullish. Accordingly, the demand for petroleum vehicles will be further suppressed. On the contrary, the demand for EVs, especially in Europe and the US will be further propelled. As a result, lithium, the main raw material for batteries, is expected to see stronger demands.
Positive FY21 earnings alert. The company announced the FY21 earnings alert. Net profit attributable to shareholders of the company jumped by between 368.45% and 436.76% YoY to between RMB4.8bn to RMB5.5bn. Net profit after deduction of non-recurring gains and losses jumped by between 621% and 795.04% YoY to between RMB2.9bn and RMB3.6bn.
Oversold due to panic mode. Share prices have dropped for four consecutive trading days. However, lithium carbonate prices stayed firmly at the record high of RMB493,500/tonne as of 8th March. The panic selling was due to the concern of an inflationary recession which is triggered by unprecedentedly high commodities prices.
Updated market consensus of the EPS growth in FY22/23 is 67.8%/7.0% YoY respectively, which translates to 16.8×15.7x forward PE. Current PER is 36.2x. Bloomberg consensus average 12-month target price is HK$204.85.
